2018 aggregate industry forecast

By |  December 15, 2017

Luck Stone’s Rockville Plant in Rockville, Virginia. Photo by Eric Warinner

Robust. Strong. Healthy.

Busy. Sustaining. Full of potential.

Improving, but still not at the peak level achieved in 2007.

These are some of the descriptions the directors of state aggregate associations use to characterize the state of our industry in 2017. Every state is, of course, in a different position. But the overall takeaway on the state of affairs across the industry is largely positive.

Aggregate producers continue to face a steep set of challenges – employee retention, hiring, and compliance issues with the Mine Safety & Health Administration – but the momentary narrative about the industry is a very good one.

Construction material sales were up this year, and the expectation for 2018 is continued growth. The future is indeed bright for aggregate producers, whose outlook changed for the better 13 months ago with the outcome of the 2016 presidential election.

Aggregate industry stakeholders still await the promised influx of new federal dollars to support surface transportation infrastructure projects nationwide. The expectation among our industry, though, is that President Donald Trump and legislators will deliver on that promise.
In the meantime, producers are eager to capitalize on the growth opportunities available to them.

“Our industry has solid companies with great employees that will figure out how to be successful regardless of the challenges put before them,” says Jerry Younger, managing director of the Kansas Aggregate Producers Association.

For this State of the Industry report, P&Q gathered insights from state aggregate association directors like Younger, but also from aggregate producers, manufacturers and dealers across the United States and Canada. In all, P&Q engaged more than 100 individuals whose collective insights provided tremendous data for the makings of this report.

Sales and pricing

About 626 million metric tons of crushed stone were produced across the United States in the first six months of 2017, according to the U.S. Geological Survey. Photo by Kevin Yanik

One of the top takeaways from P&Q’s survey of aggregate producers is that 2017 sales of construction materials were up over 2016.

In fact, nearly three in four aggregate producers say their sales were up this year. Seventeen percent report flat sales, and a small percentage was down this year compared with 2016.

Sales weren’t just up 1 or 2 percent for most. About 55 percent of producers experienced increased sales of at least 5 percent, with nearly one in four reporting a sales boost of more than 10 percent.

Increased pricing certainly contributed to the sales boost, as 77 percent of producers say their pricing of construction materials was up this year. A typical pricing boost was somewhere in the 1 to 10 percent range, although two in 10 producers say their pricing was flat year over year.

In addition, sales and pricing expectations are high for 2018. In terms of sales, most aggregate producers forecast sales to be up yet again. Twelve percent expect sales to increase by more than 10 percent, and 42 percent expect sales to grow somewhere in the 5 to 10 percent range.

Nearly three in 10 producers anticipate sales to be up as much as 5 percent, with nearly two in 10 foreseeing sales that are on par with 2017.

Pricing should get a boost, too, as 82 percent of producers plan to raise prices in 2018.

Opportunities and challenges

These days, elevated expectations regarding sales and pricing are undoubtedly contributing to a mutual feeling of optimism within the aggregate industry. For 2018, P&Q asked aggregate producers to describe their outlook for the new year, and the takeaway here is, again, largely positive.

The overwhelming majority of producers are optimistic about 2018, with 24 percent describing their outlook as “extremely optimistic” and 61 percent in a “somewhat optimistic” frame of mind. Six percent of producers are “somewhat pessimistic” as they look ahead to next year, and nearly one in 10 aren’t sure how to describe their 2018 outlook.

The opportunities fueling producer optimism for 2018 are vast. Producers are looking into a number of areas to trigger growth, including new products, site and market expansion, and customer additions. But 2018 will not be without its challenges, as some producers expect to combat higher fuel prices, labor shortages, permitting hurdles and anti-mining sentiments in their community, among other challenges.

“We’re looking at continued growth on a steady pace,” says Dana Boyd, vice president at NALC in Indiana. “Our big concern right now is the labor force. We have several folks retiring who have big shoes to fill, including mechanics, welders and fabricators.”

Boyd isn’t alone in having to solve this labor dilemma. Jerry Skaggs, a foreman at Jeffrey Sand in Arkansas, says “finding good help” was the greatest challenge his company faced in 2017. And “getting enough qualified personnel hired” was the top challenge Overland Ready-Mix Concrete plant manager Ed Syslo faced in Nebraska this year.

Industry forecasts

While such challenges threaten to hinder growth, aggregate producers continue to trudge forward. Several forecasts say continued growth is on the horizon, and producers, manufacturers and dealers alike agree that this industry can indeed return to the heights achieved before the last recession.

More than half of the producers P&Q engaged say the industry can return to those peak, pre-recession sales levels of a decade ago. One in 12 definitively says those heights will never again be seen.

The short-term outlook remains positive, though. For example, Dodge Data & Analytics predicts in its 2018 Dodge Construction Outlook that total U.S. construction starts will climb 3 percent next year to $765 billion. Robert Murray, chief economist for Dodge Data & Analytics, describes the construction industry as in a mature stage of expansion.

“For 2018, there are several positive factors which suggest that the construction expansion has further room to proceed,” Murray says. “The U.S. economy next year is anticipated to see moderate job growth. Long-term interest rates may see some upward movement but not substantially.

“Overall, the year 2018 is likely to show some construction project types register gains while other project types settle back, with the end result being a 3 percent increase for total construction starts. By major sector, gains are predicted for residential building, up 4 percent; and nonresidential building, up 2 percent; while nonbuilding construction stabilizes after two years of decline.”

Another positive forecast development is courtesy of The Freedonia Group, which predicts demand for raw frac sand to increase more than 4 percent per year to nearly 100 billion pounds in 2021. In value terms, raw frac sand is expected to grow 10 percent per year to more than $3 billion in 2021, reflecting substantial gains in average prices and volume growth.

Healthy growth is forecast for all types of raw frac sand, the firm adds, although both Northern White and Brady sand will see competition from new mines coming online in West Texas. Growth will be driven by robust gains for this other raw sand, which is expected to show increases of 12 percent per year through 2021.

Securing skilled laborers, including welders, has become a greater challenge for more aggregate producers. Photo: iStock.com/Kerkez

A Portland Cement Association (PCA) forecast, meanwhile, calls for more moderate cement consumption at 2.7 percent growth in the year ahead.

“Once infrastructure and tax reform initiatives take hold and affect economic and construction activity, then we can expect growth in cement consumption to accelerate to higher levels,” says Ed Sullivan, PCA senior vice president and chief economist.

Producers like NALC’s Boyd experienced similar rates of growth this year.

“We’re seeing an uptick across all the phases – municipalities, government agencies, heavy industrial,” he says. “Housing is up a little. These are all good signs.”

Forecasts like these absolutely translate to characterizations of the industry as robust, strong and healthy – the descriptions those state aggregate association directors use to describe 2017. Come this time next year, let’s hope those again are the words of choice to characterize the aggregate industry.

With the right developments over the next 12 months, perhaps descriptions like “record setting” or “new highs” aren’t too far off.


Post-Election Day optimism

While the election of Donald Trump as president bred new optimism into the industry’s stakeholders, aggregate producers, manufacturers and others still lack the required level of funding for surface transportation infrastructure projects.

“We need to get infrastructure renewal going,” says Ed Syslo, plant manager at Overland Ready-Mix Concrete in Nebraska. “Our roads and bridges are in serious need of repair.”

Seth Ames, general manager at Twin State Sand & Gravel in New Hampshire, couldn’t agree more. He also has concerns about the impact a federal bill might have on his business.

“Even if an infrastructure spending bill passes, it will have little trickledown effect for us,” Ames says. “Also, if a bill passes, there won’t be anyone to fill the infrastructure jobs created if immigration isn’t allowed.”

Still, coming off of last year’s election, the outlooks of industry stakeholders have largely improved.

“Get the economy going and our industry will go along with it,” Syslo says.


West Coast perspective

Hambly

Gary Hambly, president and CEO of the California Construction & Industrial Minerals Association, reflects on the state of the aggregate industry in our nation’s most populous state.

P&Q: How has your outlook for the industry changed since Election Day 2016?

Hambly: For the better. The California legislature recently passed a transportation infrastructure-funding program that generates $5.2 billion annually.

P&Q: What factors are driving your outlook for 2018?

Hambly: New transportation funding and an improving residential real estate market.

P&Q: What are the greatest challenges producers will face within your state in 2018?

Hambly: Permitting, increased environmental regulations, and efforts to repeal transportation funding.


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